Interview with Fubon’s Richard Tsai

Building a National Brand

精華簡文

The Fubon Group has bucked convention in growing its business, whether moving into southern Taiwan or expanding into non-financial fields. In this interview with Richard Tsai, the Fubon Financial Holdings chairman explains how the company has evolved into a national brand.

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Building a National Brand

The scene: Opening Day for Taiwan’s Chinese Professional Baseball League (CPBL) at Xinzhuang Baseball Stadium on March 25.

“And now, let’s introduce our special guests on the field…..” said the ceremony’s hosts as they called out the names of the 13 VIPs seated behind home plate one by one.

Sitting next to the former head of Taoyuan County and now CPBL commissioner Wu Chih-yang were Fubon Group Chairman Daniel Tsai and Fubon Financial Holdings Chairman Richard Tsai. They were the second and third of the VIPs to be introduced, but it was clear that they have yet to gain a following among baseball fans.

It was only when the crowd heard the names Kuo Tai-yuan, a legendary Taiwanese pitcher and now consultant to the Fubon Guardians, and Chen Chin-feng, the Guardians’ assistant general manager who was the first Taiwanese player ever to appear in a Major League game, that the crowd rang out in thunderous applause.

When Fubon Financial Holdings took over the Eda Rhinos in September 2016, it became the second financial holding company to invest in a professional baseball team following CTBC Financial Holdings, which took over the Brother Elephants (now the Chinatrust Brothers) in 2013.

The Tsai brothers changed their new team’s name to the Fubon Guardians and were on hand for the ceremonial first pitch ahead of their team’s encounter against the Brothers, billed as the “Battle of the Financial Holding Companies.”

“The feeling on the field is a lot different than watching on TV,” admitted Daniel Tsai, who swung and missed at the ceremonial pitch that was called a strike by his brother Richard. Fubon ended up drubbing the Brothers in the opener 8-5.

As on the baseball field, Fubon’s Tsai brothers have never shied away in the business world from standing in an unfamiliar batter’s box.

Less than enamored with being described as Fubon’s “second-generation,” the Tsai brothers prefer to see themselves as “generation 1.5” because they not only took over the family business from their father, Fubon Group founder Tsai Wan-tsai, but built it into a huge fortress.

Starting with a stronghold in property & casualty insurance, the Tsai brothers have relied on an aggressive merger and acquisition strategy to expand into securities, banking and life insurance and turning abstract “financial services” into a tangible “financial services department store.” The moves have also extended Fubon’s footprint into Hong Kong, China, Vietnam and South Korea.

In his first interview since taking over as chairman of Fubon Financial Holdings in October 2016, Richard Tsai, who was the main mover in building Fubon Life, was asked how the life insurer was able to increase its service penetration rate and transform itself from a city brand into a national brand.

Becoming a National Brand

He attributed the change to the “Fubon Boundless Talent” program that has put in place a sales system stressing entrepreneurship and encouraged young people to return to their rural hometowns and start their own business. In the three years since the program was launched, 100 new Fubon offices have sprung up in underserved parts of central, southern and eastern Taiwan, creating a sales brigade of 30 year olds.

As Hu Yue-fang, the head of Fubon Life’s Guanshan office, said with pride: “The company often says that if offices can even be set up in a town like Guanshan with only 8,000 people, then there shouldn’t be anywhere in Taiwan where it can’t be done.”

Tsai explains the philosophy behind the strategy.

“Though there are a lot more people in Taipei and they are relatively affluent, the competition there is really intense and people have access to more services,” he says.

“There are fewer services and products available in central and southern Taiwan, and rent is relatively low, so the productivity of sales people there is not necessarily lower [than in the city].”

The strategy to consolidate Fubon’s presence in Taipei while expanding in the rest of the country has also been embraced by Fubon Financial Holdings’ banking unit, Taipei Fubon Bank. Over the past two years, the bank has also seen 11 branches pull out of Taipei, and four more are scheduled to do the same this year.

Digital Convergence: The IoT Battleground

Beyond financial services, the Fubon Group’s telecom and cable TV interests are also closely tied to the daily lives of Taiwanese. Taiwan Mobile has more than 7.5 million users and Fubon-affiliated cable TV providers Kbro and TFN Media Co. reach 1.65 million households around the country.

“Taiwan Mobile is no longer a telecommunications company,” Tsai says bluntly. “We have positioned ourselves as an internet company.”

Tsai, who has served as either chairman or vice chairman of Taiwan Mobile since 2003, explains that in the Internet of Everything age, distinguishing between phones, computers, tablets or televisions is almost irrelevant.

The fastest growing business for both Taiwan Mobile and kbro is now internet services, Tsai says.

That growth has been partly fueled by the company’s existing hardware. Ten years ago, fixed networks in the hands of Taiwan’s telecom firms were seen as money-losing wastes. But they have since been converted into basic fiber-to-the-home (FTTH) infrastructure, bringing high-speed internet access directly to homes, apartment buildings and offices.

This infrastructure now serves as the Fubon Group’s Internet of Things platform, and will enable Kbro’s OTT (over-the-top) platform (which delivers content directly via the internet) to offer more than TV in the future, bringing consumers all types of content that can be viewed on many different screens.

“The ultimate key to victory is content,” Tsai says.

The Tsai brothers’ attitudes toward financial services, telecommunications and cable TV have strongly influenced the development of Taiwan’s services sector. What will their next move be?

The following are excerpts of CommonWealth Magazine’s interview with Richard Tsai.

CommonWealth Magazine: Over the past nine years, Fubon Life has evolved from a “city” brand into a “national” brand. What have you done right?

Richard Tsai: The 2008 acquisition, thinking back to it was a pretty gutsy move. The financial crisis was unleashing turmoil at the time. American insurer AIG was taken over by the U.S. government after the fall of Lehman Brothers, and our Fubon stock fell at one point to NT$16 a share.

We had had conversations with ING about acquiring ING Antai Life a year or two earlier, but the price was too high. When the crisis hit, we had a good understanding of them because of our past discussions and were able to close the deal in two weeks. We felt the US$600 million price tag was very good, but the truth is we didn’t have any money. So we gave ING US$300 million in Fubon stock and issued US$300 million in corporate bonds that they bought.

When we bought ING Antai, it was quite different from how the company was at its peak. Its sales staff of nearly 20,000 people at one point had shrunk to 7,000 to 8,000. What everybody worried about at that time was being laid off, and we had to reassure [ING Antai’s] people. We held three meetings around Taiwan to explain the situation. I still remember the Taipei meeting being held at the World Trade Center – it was like a concert.

We announced a “one country, two systems” approach, saying that in the first three years, the sales system would not be changed. We spent a lot of time communicating during those three years, and as they say slow and steady wins the race. I think that’s something we did right. Fubon has grown from 10,000 people eight years ago to 30,000 people today, and our new hire retention rate has risen from 40 percent to 60 percent. The average age of our sales force is only 30 years old, so we feel it makes sense to get involved in sports.

System Integration; Returning Home

CW: You just said that the integration of the sales system was a success. Why was it successful?

Tsai: Our sales system puts extra emphasis on entrepreneurship. We have a “five-generation” system. For example, if I recruit you, you’re my “first generation,” and I can receive 5 percent of your commissions. For the “second generation” that you recruit, I get 4 percent of their commissions, following by further decreases per new generation of recruits. This system gives sales agents motivation to recruit new people, and experienced workers motivation to mentor those with limited experience.

Three years ago, we launched the “Boundless Talent” program, which compels young people to return to their rural homes and start businesses. I can’t say that three years ago we were a national brand. Why was there a “Boundless Talent” program? It’s because I went to Miaoli once for a high school basketball tournament we sponsored. The local office manager watched games with me, and I found out that Fubon had only two outlets in Miaoli, my father’s hometown. After getting back to Taipei, I asked my colleagues to show me a map of our office network and found that there were many towns in which we didn’t have any presence at all.

Of Fubon’s 30,000 employees, 10,000 are in Taipei, but of Cathay Life’s 30,000 employees, only 3,000 are in Taipei. So in the past three years, Fubon has worked on expanding into central and southern Taiwan, setting up about 100 locations. The program is continuing to expand.

CW: You are probably the only financial institution that is moving toward central and southern Taiwan.

Tsai: Fubon has a lot of visibility, but its presence in central and southern Taiwan was especially inadequate, so the Boundless Talent program has been extremely effective. This is a road that we had to take to become a national brand. In fact, Taiwan ’s wealth is relatively evenly distributed, it doesn’t have any truly poor townships, and there are plenty of towns with populations of 50,000 to 100,000 people.

Blockchain, Robots and IoT

CW: You are expanding your retail presence and aggressively recruiting people. Does that mean you don’t believe that FinTech (financial technology) will replace physical outlets?

Tsai: Fubon has actually been very active in FinTech. We’ve set up a Fubon Group FinTech office and developed the world’s first Blockchain alliance that we will first apply to insurance and sports.

In addition, we have almost completed the development of our robots. At the end of last year, we took a 30 percent stake in England’s largest robo advisor and digital wealth manager Nutmeg, becoming a major shareholder. We plan to set up a joint venture that will make use of Nutmeg’s technology and experience first in Hong Kong and Taiwan and then in the Asian market. In the future, we can use robot advisors to serve customers with under NT$3 million under management. That way, they won’t compete with [human] financial advisors and can even complement them. This allows you to practice inclusive finance, and I think the Financial Supervisory Commission will be very much in favor of that.

We have also paid attention to the Internet of Things. We think sports and health care can be integrated with life insurance. Taiwan Mobile is now developing services related to the Internet of Things, smart homes and the Internet of Vehicle. Tesla has installed Taiwan Mobile in its cars in Taiwan. There aren’t many yet, but there will definitely be many of them down the road. In the future, we will join hands in developing Internet of Vehicle services, and Taiwan Mobile and Kbro are working together on smart homes.

In terms of technology, Fubon’s biggest shortcoming is big data technology. Right now, we’re involved in doing data mining, but it doesn’t go as far as we’d like it to. When I went to the U.S. to see this type of [big data] company, just the educational backgrounds of the staff were incredible. They were all math Ph.Ds or physics, chemistry or material sciences Ph.Ds. They have these kinds of people working on big data; we’re so far behind them. So we want to invest in this to give it a try to see if their analysis is helpful.

CW: You have also been very active recently with cable TV, opening cinemas on the one hand and putting together an OTT on the other while also investing in Universe Films and other film companies. Why?

Tsai: We feel that for cable TV the ultimate key to victory will be content. In the future after Taiwan has become fully digitized, the NCC [National Communications Commission] hopes we will not consistently re-broadcast non-digital programs. We have to produce some original programming, and so we are investing in content producers. We are also thinking of investing in a Hollywood company.

In my mind, Taiwan Mobile is no longer a telecommunications company. We have positioned ourselves as an internet company, with T.I.M.E. [digital convergence] the main focus, encompassing Telecommunications, the Internet, Media and Entertainment. Today, the cable TV internet business and TFN Media’s fiber optics internet business are both growing. They both enable you to go online whether you’re using a TV, computer or mobile phone. In the future, SMOD [system management on demand], kbro Cinemas and myVideo will all need good content and they will all be integrated together. From this perspective, sports events will also be very good content in the future.

Cultivating Taiwan, Thinking International

CW:When people on the outside look at Fubon’s investments, do they see them as being somewhat unfocused?

Tsai: Not at all. All of our investments are related to our core businesses.

CW: In terms of digital convergence, the logic behind your outside investments is T.I.M.E. What is the logic behind your financial expansion?

Tsai: Besides deepening our roots in Taiwan, we also hope to gain a foothold in other Asian countries. We’re looking at both Northeast Asia and Southeast Asia. My theory is that the Northeast Asian market is big, and with just a 3 to 5 percent market share, your turnover will be very big. To reach that same turnover in Southeast Asia, you need at least a 20 to 30 percent market share.

We invested in Hyundai Life of South Korea, which has tens of billions of Taiwan dollars of premium revenues a year. In Hong Kong in less than a year, our life insurance revenues have amounted to HK$2 billion, but in Vietnam it’s only NT$10 million to NT$20 million.

ASEAN’s problem is that while it has a population of 800 million people, every country’s language, religion, and level of government efficiency are all different. You need a separate team of people in every country to do the business, and you cannot hold a majority stake in the company.

It’s not as easy as one might imagine, and up to now we’re not that high on this market. On the other hand, there is relatively little competition in Southeast Asia’s TV home shopping market, so it’s pretty good. The [Fubon affiliated] momo shopping channel will start up in Malaysia this year and in the Philippines next year.

CW:So the financial holding company’s new investment will focus on Northeast Asia?

Tsai: The advantage of Northeast Asia is that it has a big market, but the disadvantage is the same in Taiwan – slow growth. China of course is growing quickly, but we have already invested a lot there, and now we need to diversify a little. We are also looking at Japan.

Right now in China, we already have a property & casualty insurance unit, two banks – Xiamen Bank and Fubon Bank (China) – and an asset management unit. We are also involved in joint ventures in the securities and life insurance fields that are actively preparing to start business. So we are pretty well positioned in China, and now we just have to steadily grow. Although the Chinese market is big, the competition there is also intense, and domestic rivals are very strong.

We have also teamed up with Tencent on an insurance agency, and the application is now being processed. This insurance agency will be an online platform on WeChat. It won’t just sell Fubon products but also select some other good products because China is so big that there are some places we can’t serve and some products we’re not necessarily willing to sell. Growth will be faster this way.